7/13/2007 @ 2:20PM

Decision Time

The Chirathivat clan has built a fortune in Thai retailing. But after seven decades it is outgrowing its homeland.

On a recent evening a dozen members of the Chirathivat family gathered in Bangkok at their flagship shopping mall, Central Chidlom, to celebrate Central Department Store’s sixtieth anniversary. The relatives cooked and served their signature family dishes such as Hailam chicken rice and hot and sour Sichuan soup to a few hundred members of the Bangkok press corps, friends and celebrities.

It was a fitting gesture for a family that has made a fortune serving millions of Thai customers since it opened its first shop 70 years ago. Its Central Group–whose sales are expected to reach $3 billion this year, up from $900 million in 2000–is the nation’s largest retailer, boasting nearly 400 stores, 450 restaurants and 11 malls. Its sprawling assets include ten retail chains, including Zen and Top Supermarkets, and the Thai franchises for American fast food outlets KFC, Baskin-Robbins and Pizza Hut and office supply store
Office Depot
. It’s also stuffed four office towers, two convention centers and ten hotels into its portfolio.

The celebration offered a rare glimpse into the low-profile family, one of Thailand’s richest. The tight-knit clan has nearly 200 members, with roughly 50 working for family-controlled companies and at least 40 holding shares. The total value of these stakes: a minimum of $2.8 billion. Five individual Chirathivats or groups–parents and their children jointly owning stakes–qualified for our list of the richest Thais, including Central’s Chairman Vanchai Chirathivat and his family, ranked 25.

After all their success the Chirathivats and Central have now reached a crossroads. “Central doesn’t know where to invest,” says Tos Chirathivat, Central Retail’s chief executive. Son of the late Samrit and grandson of the company’s founder, the 43-year-old Tos is one of the key third-generation leaders who will decide where to take the Chirathivat empire.

The problem is that Central already dominates much of Thai retailing. Last July it opened its newest mall, CentralWorld, the biggest in Thailand. It bought the former compound of the British embassy last year for $95 million and plans to grace one of Central Bangkok’s most coveted neighborhoods with a luxury retail complex and hotel. It won the bid to lease a prime site in the bustling Suan Lum section of Bangkok, where it might develop a complex of shops, exhibition halls, an office building and a hotel. It is pumping $500 million into four new malls outside of Bangkok.

Not that the company doesn’t have any competition. The Mall Group–Thailand’s second-largest retailer but only half Central’s size–scored when it teamed up with mall developer Siam Piwat to build Siam Paragon, a megaluxury shopping center. It opened in December 2005 just a short distance from where CentralWorld was being built. Connected to a SkyTrain station, Siam Paragon regularly outdraws its rival.

In any event, by the time their new projects are up and running, the Chirathivats will need a new strategy. “We’ll either have to enter another industry or stick to retail and move international,” says Tos.

The preference seems to be to expand overseas, but the family’s ambivalence is clear. In recent years it’s looked at opportunities in China, Vietnam, Indonesia and Malaysia, yet nothing has materialized as it takes its time evaluating potential sites and partners. “In Thailand we might be very big, but we might be nothing internationally,” says Tos.

The Chirathivats say they are just being prudent, but some wonder if they are being a bit too conservative. Peter Blaney Davidson, a vice president at Central Pattana and an adviser to Central Group on international business development, says it has been too slow in making decisions and that it will cost them. The price of leasehold land in prime areas of Hanoi and Ho Chi Minh City, for instance, has almost doubled in the past two years while Central was pondering whether to invest. “There are visionary people in the group,” he says. “But senior members, the uncles, are very conservative, and they are afraid of going international.”

Still, the family is getting close to signing a deal with Chinese partners. It won’t reveal any details other than to say it will likely announce a site by year-end. “The China retail market, though difficult and maybe full of pitfalls, is similar to Thailand’s,” Tos says. “The two peoples share a very close cultural affinity and strong links, while consumers aspire to leading international brands.”

China is a country where the family has deep roots. Central Group’s founder, Tiang Chirathivat, left Hainan in the early 20th century and arrived in Thailand dirt poor. The business began as a tiny outlet in Thonburi, a province adjacent to Bangkok, with the sign, “keng seng lee” (baskets for sale). But the operation didn’t take off until 1947, when Tiang and his children moved the store near the Oriental Hotel. It began selling a large variety of domestic and international newspapers and magazines under the name Central Trading Store. As the business grew, the family added merchandise and, under eldest son Samrit, opened Thailand’s first department store, in Chinatown in 1956.

As the business expanded, so did the family. Tiang’s three wives gave him 26 sons and daughters. When Tiang died in 1968 Samrit became the family’s head. He oversaw the development of its first mall, Central Ladprao Plaza, and the opening of the first Central Department Store in Chiang Mai, to the delight of the area’s residents and visiting tourists. This marked the first time a Bangkok department store expanded to the provinces. By the time he died in 1992 he had established Central Group as one of Thailand’s biggest conglomerates.

Tiang’s second son, Vanchai, took over and soon began overhauling the operation. Feeling that the company was unfocused, he closed hundreds of small businesses to focus on retail. He also sold its discount retailer Big C and supermarket chain Tops, later buying them back at a lower price. The timing couldn’t be better. The 1997 financial crisis wiped out many family fortunes. But Central had a strong cash flow and no significant foreign debt, allowing it to finance its malls’ tenants so they could stay in business.

Vanchai, who’s now 80 and serves as Central Group’s chairman, also tackled prickly family issues. “Very few families in Thailand have so many members,” he says. “We were having a lot of problems. Aunts and uncles were trying to suppress their nephews and nieces.” In 1995, with the help of Viroj Phootrakul, his friend and the president of
Unilever
Thailand at the time, Vanchai set up a 12-seat family council. Members include Vanchai and at least two other rich listers, Suthichai (No. 36) and Suthikiati (No. 37). The council meets at least four times a year and tends to such matters as share ownership. It also provides family members with benefits such as health care, education, housing and pensions by either paying for them directly or dividing up the dividends to cover everyone. This year the council decided to distribute 20% of the group’s profits as dividends to family members.

In 2001 Vanchai also established a board of directors. The seven directors, mostly senior members of the family council, approve investment plans, make strategic decisions and decide whether younger Chirathivats are ready for executive positions or outsiders need to be brought in. In fact, the board served as a way for Vanchai to ease senior family members out of day-to-day operating roles and free up posts for the next generation. Among the board’s first moves were to promote Tos to CEO of Central Retail and his sister, Yuwadee, to president of Central Department Stores. Vanchai’s son Kobchai, then 45, got the nod to take over as chief executive of Central Pattana, the listed property-development unit.

Most of the younger Chirathivats who now run the show are foreign educated and independent minded, which is making an impact on the business. Tos, who got his undergraduate degree from Wesleyan University and his business degree from Columbia, both in the U.S., brought the idea of supercenters back home with him and started Big C. At Central Retail he’s focused on brand building, and he’s started such chains as Power Buy, now Thailand’s leading electronics retailer, and Supersports, the number one sports store.

Kobchai, who studied political science at the University of Notre Dame in the U.S. and is the family’s only Christian, was the one who pushed for Central to take its retail development arm public more than a decade ago. He also oversaw the development of CentralWorld, the group’s biggest project so far, and marketed it to foreign media with the aim to not only attract foreign visitors but to familiarize non-Thais with the brands ahead of the company’s foreign expansion, when it comes.

Family members dismiss any suggestion that the size of the clan is an obstacle to the company’s decision making and growth. Rather, they say, the family council and the board have made the group very well organized and much more efficient in running the business and making decisions. Nevertheless, they are trying to bring more professionals, including foreign executives, into the group. “We have become a model to many other business families,” Tos says. “I am planning a future where I don’t have to rely on the family members.”